Wednesday, January 13, 2010

As Cato's Michael Cannon details in a policy analysis published today, the healthcare reform bills currently under consideration in Congress contain provisions that would "penalize work and reward Americans who refuse to purchased health insurance." Not only do they promise to be a fiscal disaster, but they will also do significant harm to the incentives of low- and middle-income single workers and families. A must read for all who want to understand what these bills really entail. Excerpts:

... mandates and subsidies would impose effective marginal tax rates on low-wage workers that would average between 53 and 74 percent— and even reach as high as 82 percent—over broad ranges of earned income. By comparison, the wealthiest Americans would face tax rates no higher than 47.9 percent.

Over smaller ranges of earned income, the legislation would impose effective marginal tax rates that exceed 100 percent. Families of four would see effective marginal tax rates as high as 174 percent under the Senate bill and 159 percent under the House bill. Under the Senate bill, adults starting at $14,560 who earn an additional $560 would see their total income fall by $200 due to higher taxes and reduced subsidies. Under the House bill, families of four starting at $43,670 who earn an additional $1,100 would see their total income fall by $870.

In addition, middle-income workers could save as much as $8,000 per year by dropping coverage and purchasing health insurance only when sick. Indeed, the legislation effectively removes any penalty on such behavior by forcing insurers to sell health insurance to the uninsured at standard premiums when they fall ill. The legislation would thus encourage "adverse selection"—an unstable situation that would drive insurance premiums, government spending, and taxes even higher.

Conclusion: The health care bills that President Barack Obama is shepherding through Congress contain new taxes and new government subsidies, both of which would touch low- and middle- income Americans. The complexity of those tax-and-subsidy schemes makes it difficult for voters to discern whether they would be a net beneficiary or a net payer.

... low- and middle-income exchange participants would face often alarmingly high effective marginal tax rates. Even if such workers would receive subsidies under the House or Senate bill, they nevertheless would keep less of every additional dollar of income than they do today. Many would see their tax bills rise even as their real incomes fell. Those perverse incentives would set a low-wage trap for millions of Americans, discouraging them from climbing the economic ladder and encouraging them to remain dependent on taxpayers. Meanwhile, the legislation’s insurance regulations would encourage Americans not to purchase coverage—the opposite of the legislation’s intended effect.

In my view, the healthcare reform under consideration is so reckless and over the top that I can't believe it will ever see the light of day.

The huge increase in effective marginal tax rates for many tens of millions of workers and families is something I consider to be very significant. It's an obscure subject for MSM, and difficult for the layman to understand, but it could have far-reaching and very unfortunate repercussions. Reduced growth, a lower standard of living that otherwise, and a greater disparity between rich and poor, for example.

Like many, I am dubious about the plan for national coverage. It is not a real national health agency, nor a private system, so it seems to combine the worst of both systems.

But right-wingers do have a problem. The virtues of American agriculture are routinely extolled, including recently by Water Williams. But the ag sector is the most subsidized and regulated and guided sector of the economy. "We have the best farmers in the world" How many times have you heard that?

Recently, Dr. Perry ran charts showing food costs declining as percent of family budget--meaning farmers are doing a great job.]And the huge defense sector is often presented as beyond any hint of bureaucratic ossified lard or patronage.

So, right-wingers themselves extol the virtues of federally run programs and state-dominated economic, and send a message to the public--the feds can do it, and do it well.

Benjamin: you won't hear any arguments from me about the bloated ag sector. Repubs and Dems are all to blame for this, and there is plenty to go around. But this is hardly an argument for why Repubs/conservatives can't criticize healthcare.

I am worried when what passes for the right-wing gets hysterical about a one-time bailout for automakers (which was a bad idea), but is mute when it comes to the annual $60 billion bailout for the ag sector. Mute!

But our farmers are the best in the world! They only get an annual $60 billion bailout.

And our military is sacrosanct--sending a message that federal agencies can do crack work.

(I think no public agency anywhere on the planet does crack work--I think the lard piles on year after year, as there is no "going through the fire" that the private sector must survive periodically).

In short, the right-wing says the feds are winners.

Why not a dedicated cadre of national health service professionals--after all, our military does a crack job, so why not health care?

In short, the right-wing is schizophrenic right now, w/o a clear message. Cutting taxes is not a complete policy--it has to include cutting outlays.

Maybe Republicans can score a win in the next election--but I fear they will not be the Everett Dirksens and Eisenhowers, who ran balanced budgets and cast gimlet eyes on all federal activities. Maybe not even the Gingrich R-Party which ran surpluses (with Clinton) in the 1990s.

"I am worried when what passes for the right-wing gets hysterical about a one-time bailout for automakers (which was a bad idea),but is mute when it comes to the annual $60 billion bailout for the ag sector. Mute!"

Benjamin, these right-wingers you go on about in every post exist only in your fevered imagination. I don't know any right winger who supports ag welfare, or defends the Pentagon's shoddy book keeping. We support killing terrorists, not bloated, defense budget earmarks into John Murtha's district.

I said they are mute about ag subsidies, and that American farmers are routinely extolled as the best in world.

I think the record is pretty clear on this. There was a lot of howling about the auto bailout, but where are the right-wing columns, blogs and pundits and angry, ridiculing speeches about the ag subsidies? I have not seen any.

Fat in the Defense Department? I never heard any Republican talk about the dire need to cut fat in the DoD--in fact, even when there is so much fat it gets in the way of the DoD performing actual missions (btw, I think we should search-and-destroy terrorists too. I do wonder why a relatively small number of punk terrorists costs hundreds and hundreds and hundreds of billions of dollars to pursue.)

If you can cite where the Republican platform calls for the elimination of the Department of Agriculture, then I will eat my hat.

Most rural states send R-Party congressman to DC. They become part of the rural welfare parade--crop subsidies, highway subsidies, water system subsidies, phone subsidies, power subsidies, postal subsidies, airport subsidies, etc etc etc. Rural America would just about blow away w/o federal subsidies.

I hope the R-Party does come to its senses, and stop funding Bridges to Nowheres, and start balancing the budget. I don't think the D-Party will do it either.

Actually, this is one of the very few aspects of the USA I am negative about, I do not believe either party, as constituted, can balance the federal budget.